Bestinvest says
Investors' capital is used to buy derivatives issued by Barclays Bank PLC, structured to meet the objectives of the plan.
Unlike other listed securities, structured products are subject to counterparty risk. To reduce the risk, the fund is required to provide an independent depository with government bonds rated at least AA as collateral. The fund has legal rights to these bonds and, should Barclays Bank PLC fail, they will be sold and the proceeds will be paid into the fund.
If the FTSE100 is above its initial level at the end of the year 3, 4, 5 or 6 the fund closes and investors receive their Initial Capital plus 6.5p per annum simple growth for each year of the plan.
If the FTSE100 ends below 100% of its initial level but finishes above 60% of its starting level at the end of the term, investors receive their Initial Capital but no growth. If the FTSE 100 finishes below 60% of the initial level, investors lose their initial capital in line with index.
Returns are expected to be treated as capital gains for tax purposes.
When tracking the index in this manner, investors do not gain any benefit from dividends - these would be received if they held the underlying shares.